Nigeria’s inflation rate is on course to spiral above 50 percent if the current socioeconomic crisis is not addressed as soon as possible. Presently at 20.5 percent which represents the country’s highest rate since September 2005, this inflation continues to rise as a result of the deteriorating economic challenges that have ravaged the country. Although this problem is not peculiar to Nigeria’s economic status quo, the situation driving this surge such as, insecurity & banditry, poor earnings from natural resources, debt burden, foreign exchange problems, sabotage, all of which have hugely affected local production in the country, raises concerns. This situation have also placed huge pressure on Apex banks to also increase their interest rate to rein in rising prices.
Moody’s report notes that banks in Africa would have to respond to this surging rate and higher saving rate with a rising re-pricing of loans. The report also foreshadows that the response will however weaken loanees’ ability to repay the existing loans and increase the banks’ provisioning for loan loss. The report however indicates that most banks took precautious measures following the outbreak of the Covid-19 pandemic posed to limit the extra provisioning required as these defaults increase. The Moody’s cooperation’s arm asserted that the marginal impacts on banks in Nigeria and Kenya especially will be muted, due to their interest rates being already high and their deposit rates, being index-linked to the policy rate.
Rising production cost & supply disruption drives inflation in Nigeria.
Recent data from the National Bureau of Statistics (NBS) indicates that Nigeria’s inflation increased from 19.6 percent recorded in July to 20.5 percent. The NBS’ Consumer Price Index (CPI) report showed a 1.77 percent increase in CPI on a month-on-month basis, adding that food inflation witnessed a 2.82 percent increase to 23.12 percent in August 2022, on a year-on-year basis. The report indicated that is was as a result of the increase in prices of bread and cereal, as well as food products like potatoes, fish, meat and oil. Professor Uche Uealeke, noting that the CPI report showed that the rising costs of production and supply disruptions have well driven the inflationary pressure in Nigeria, stated that the 20.5 percent inflation rate was expected, but admitted that the CBN’s monetary policy tightening stance alone might not be enough to improve the situation.
Emmanuel Kelvin, the CEO of Diary Hills Limited, however argued that the recurring devaluation of Naira which hugely impacts the cost of production was responsible for the current increase in inflation rates. He noted that will enhance the country’s Forex problem asides increasing the quality and quantity of its export was to re-awaken the Yuan swap deal which was signed in 2018. Dr. Muda Yusuf, the former director of Lagos Chamber of Commerce and Industry (LCCI), while reflecting on this situation, noted that the inflationary pressure on the country’s economy was deeply troubling, as the driving factors of this inflation is yet to be abated. He further pointed out that the inflationary pressure continually weakens the buying power of the people and by aggravating pressure on the production costs, profitability is negatively impacted.
Forex needed, as importation dependence devalue Naira.
The Chairman, Financial Reporting Council, Dr. Sam Nzekwe also posited that Nigeria’s lack of involvement in production activities makes it impossible for experiencing respite in terms of the high inflation rate. According to him, the country needs forex, as our dependence on importation have responsibly devalued the currency. On the high cost of production, he also stated that the epileptic condition of power supply have forced most production companies to use diesel which has also been quite expensive. He however advices the Federal Government to enhance local production by making provisions for an enabling environment for these businesses to thrive.
Taiwo Oyedele, Fiscal policy partner and Africa’s tax leader at PwC noted that the government, whilst addressing discrepancies of the energy supply chain, must also curb insecurity, so that farmers can efficiently work on food production. He also pointed out the need for enacting relevant fiscal policy measures like the suspension of the recent excise duty on telecommunications services and non-alcoholic beverages, so as to control the rising inflation by complementing the monetary policy measures. He further advices that MPC must not increase the MPR, so as not to hinder businesses from funding their capacity and needed expansions to enhance their supply chain.
Covid-19, Ukraine-Russia crisis have also contributed to global inflation.
The Chief Economic Adviser to the President, Doyin Salami, whilst speaking on the fiscal impact on the Covid-19 pandemic and future lessons at the Stakeholders Dissemination Workshop pointed out that the huge amount spent by the global economy was responsible for the cascade in inflationary pressures and economic decline. He also noted that this global economic shock was as a result of the impact of Covid-19 pandemic and the Ukraine-Russia crisis, disrupting the global supply chain and leading to a global inflation. He however added that the Federal Government was putting measures in place to elevate Nigeria’s economy to reflect the current economic situation.
National Bureau of Statistics: Website
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